Wednesday, May 17, 2017
8:31:50 PM EDT

All In

by
Jim Brown

This headline dip could be a buying opportunity for the right stocks. The FAANG stocks were hit hard but we know there are thousands of traders/investors that have been waiting for an opportunity to enter those stocks on a pullback. When this dip ends we should see those stocks spring back very quickly.

I believe the dip will end quickly. The entire uproar over Memogate and the Russian collusion investigation is political theater. Yes, it is serious but unless somebody produces a tape where Trump threatens to fire Comey if he does not drop the investigation, this will all blow over. Comey has more credibility than Trump but the president has the most power. In a case of "he said, he said" it will boil down to a swearing match and without hard proof it will eventually end. Any testimony Comey gives will be colored by his hostility for Trump and the method of his termination and eventual slander. While I believe Comey is an honorable person, there will be bias in the reporting of the events.

The knee jerk reaction to the headlines should be over. There will probably be some further volatility as margin calls are covered on Thursday. However, if Thursday turns into another bid decline then Friday could be a disaster. Investors who bought the dip today and at the open tomorrow would be racing to the exits if it turns into a market flush.

I am going all in today. If you are a cautious investor, you do not have to add these positions. You are responsible for managing your own risk.

The play descriptions are going to be short because everyone knows these companies. I am not adding stop losses because the market could see significant intraday volatility over the next couple days. Once past this volatility I will add the stops.

Netflix, Inc., an Internet television network, engages in the Internet delivery of television (TV) shows and movies on various Internet-connected screens. The company operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD. It offers members with the ability to receive streaming content through a host of Internet-connected screens, including TVs, digital video players, television set-top boxes, and mobile devices. The company also provides DVDs-by-mail membership services. It serves approximately 100 million streaming members in 190 countries. Netflix, Inc. was founded in 1997 and is headquartered in Los Gatos, California. Company description from FinViz.com.

Netflix posted blowout earnings and shares rocketed higher to hit $161 on Monday. I have been waiting for three weeks for a pullback. Analysts are projecting higher highs with the high price targets at $175. There have been continuous rumors that either Disney or Apple will try to buy them not only to acquire the platform but to keep the other company from acquiring it. Both have said they want to have a big presence in streaming. Tim Cook just said it last week. Both have the cash and Disney has billions of dollars in content it can immediately add to the platform.

Netflix is expected to add 3 million subscribers in Q2. They are testing higher prices in Australia to see what price levels will cause subscriber flight. Once they figure it out you can bet they will apply it to the rest of their 100 million customers. That is instant profit. Bumping rates by $5 gets them another $500 million a month in revenue.

They announced with earnings they were finally entering China through a partnership with the largest existing streamer in China. This is one more step to a full release in the future.

Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allow people to enter an immersive and interactive environment to play games, consume content, and connect with others. Company description from FinViz.com.

Facebook also blew away earnings estimates and they are growing earnings at the fastest rate of any of the FAANG stocks. They have multiple revenue streams and sites like Instagram and WhatsApp that are just starting to accelerate earnings. They said Instagram had reached 50,000 advertisers. Facebook's problem is they do not have enough page views to monetize despite the 1.9 billion users. They have more advertisers than they have space.

Earnings August 2nd.

Facebook had been moving sideways since hitting the $153 high post earnings. Volatility was low and investors were just waiting for a market dip so they could get a better entry point. Share fell to uptrend support at $145 and even if they due decline further there is strong support around $140.

The iShares Russell 2000 ETF seeks to track the investment results of an index composed of small-capitalization U.S. equities.

The Russell 3000 is the top 3,000 investible stocks in the U.S. The Russell 1000 is the top 1,000 stocks by market cap and the Russell 2000 is the next 2,000 stocks by market cap. The Russell 2000 is commonly called the small cap index but it has a large number of midcap stocks as well.

The Russell 2000 imploded with a 39 point, -3% decline to 1,355. There is strong support at 1,344. "IF" the market rebounds as I expect the Russell is likely to rebound strongly now that all the stop losses have been hit.

The corresponding level on the IWM is $134 with the ETF closing at $134.89 on Wednesday. This support has held since January despite six intraday penetrations that were immediately bought.